A business is defined as something that ultimately has a profit motive behind its actions. Any business or corporation wants to continuously grow and offer its customers services and products that are always improving. They must, however, achieve these goals at the same time as trying to keep their costs as low as possible. For this function, a company’s corporate finance department is the solution. This department will look at what the future of the company is expected to hold and try to get the most out of the path ahead.
The leader of the corporate finance department is known as the Chief Financial Officer or CFO, in short. It is the responsibility of the CFO to meet the financial goals of a company which will ultimately be reflected in the price of a company’s stock. The CFO must worry about a whole range of complex financial problems and issues and ensure that these issues have a positive impact on the performance of a company.
According to the size of the company, there are anything between 5 to 10 functions in the financial department that must work together to achieve the corporate finance goals of the company. Usually when a company is hiring for this position, it is normal for new employees to be in roles that are rotational in nature. This gives the employees, who could be leaders in the future, a feel of every function within the corporate finance department and how they all work together. These functions all make up this sophisticated system of ideas known as corporate finance. There are two main categories that corporate finance is made up of, first is the investment function and second is the financing function.
The Capital Investment Function relates to building the firm’s investment strategy and portfolio and the selection of investment projects. In this department the CFO works closely with strategic managers and chief executives and reveals how financial principles can help a firm make the major decisions involve in corporate strategic policy. The capital investment function can range from small investments such as individual projects such as pursuing a new market or product, all the way up to acquisition of an entire company and its product line.
Whether it is a small or a large investment the company is trying to make, their strategy will depend heavily on cash flows and expected cash flows. They will be paying a lot of attention to the Net Present Value of their investment proposition as well as the Internal Rate of Return that the investment is going to give them. Firm’s will continue to be successful in their investment decisions as long as they pursue projects where their internal rate of return is more than the market rate of return and the Net Present Value of the investment is greater than zero.
The other function that the corporate finance team is involved with is the Financing function. This deals with rising capital required for the company to continue operating as well as for growth purposes. It s ultimately the CFO’s decision as to when the company should look at the investing public as a means of raising capital. The CFO and his team must decide on which instruments they will be issuing to raise this capital and also how the investors will react to the offerings of the company. This will all heavily influence the price of the company’s shares and how much money the company is ultimately able to get.
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